Liquidity and shareholder activism

Oyvind Norli*, Charlotte Ostergaard, Ibolya Schindele

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract (may include machine translation)

Blockholders' incentives to intervene in corporate governance are weakened by free-rider problems and high costs of activism. Theory suggests activists may recoup expenses through informed trading of target firms' stock when stocks are liquid. We show that stock liquidity increases the probability of activism but does less so for potentially overvalued firms for which privately informed blockholders may have greater incentives to sell their stake than to intervene. We also document that activists accumulate more stocks in targets when stock is more liquid. We conclude that liquidity helps overcome the free-rider problem and induces activism via preactivism accumulation of target firms' shares.

Original languageEnglish
Pages (from-to)486-520
Number of pages35
JournalReview of Financial Studies
Volume28
Issue number2
DOIs
StatePublished - 1 Feb 2015
Externally publishedYes

Keywords

  • G14
  • G34

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